Ketamine clinics are increasing in number in the United States and globally. As we described previously, ketamine is a Schedule III drug under the federal Controlled Substances Act, has been approved by the Food and Drug Administration (FDA) for certain medical uses, and may in some cases be used for off-label uses (such as anxiety or depression) by medical professionals. That said, the legal framework surrounding the ownership and operation of ketamine clinics (which involve off-label uses of ketamine) can be extraordinarily complicated and will vary significantly from jurisdiction to jurisdiction.

California is certainly a place where ketamine clinics are prominent. The corporate structures of many ketamine clinics involve a risky dance when it comes to the corporate practice of medicine. Ownership of medical practice in California is highly regulated. There are significant restrictions on who can own a medical practice here; that includes ketamine infusion clinics because only licensed medical practitioners can prescribe and manage ketamine and corresponding treatments.

California law requires that a medical practice be owned by a specific entity (a professional medical corporation) and that a majority of owners of the corporation be physicians with limits on ownership by non-physicians to other medical professionals. There are similar laws for medical partnerships. What this means is that ketamine clinics must generally be owned by licensed physicians, and cannot have owners who are not licensed medical professionals. That said, there is still a narrow possibility for non-medical professional business ventures with ketamine clinics: namely though the management-services organization (MSO) model.

MSOs may at first sound a lot like the typical management company, but they are very different and they’re very limited in what they can do. The California Medical Board states that physicians cannot delegate the following to MSOs or non-physicians:

Ownership is an indicator of control of a patient’s medical records, including determining the contents thereof, and should be retained by a California-licensed physician.

Physician(s) operating a medical practice as a limited liability company, a limited liability partnership, or a general corporation.

Management service organizations arranging for, advertising, or providing medical services rather than only providing administrative staff and services for a physician’s medical practice (non-physician exercising controls over a physician’s medical practice, even where physicians own and operate the business).

A physician acting as “medical director” when the physician does not own the practice. For example, a business offering spa treatments that include medical procedures such as Botox injections, laser hair removal, and medical microdermabrasion, that contracts with or hires a physician as its “medical director.”

How MSOs can be paid is also extremely complex. Physicians are prohibited by California law for paying for referrals, but the following may be permitted:

The payment or receipt of consideration for services other than the referral of patients which is based on a percentage of gross revenue or similar type of contractual arrangement shall not be unlawful if the consideration is commensurate with the value of the services furnished or with the fair rental value of any premises or equipment leased or provided by the recipient to the payer.

In other words, it is possible that fee-splitting arrangements with MSOs could be legally justified in come cases, but it’s not a given and the law here is very complicated.

This explanation really just scratches the surface of the many issues surrounding the structure of ketamine clinics. The bottom line for ketamine clinics is that ownership and operational issues are not at all straightforward, especially in the context of the general prohibition in California on the corporate practice of medicine. And to make matters more difficult, ketamine clinics are subject to a whole host of other state and federal requirements on physicians and healthcare providers. Tread carefully and look for competent counsel if you plan to enter this trending space.

The U.N. body that decides drug policy has a plan for moving forward with a landmark vote in December on whether to revise the inclusion of cannabis and cannabis-related substances in two international narcotics conventions. The roadmap from the U.N. Commission on Narcotic Drugs (CND) for holding the vote despite the global coronavirus pandemic was […]

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In prior blog posts (see here and here), I described how we have been fielding regular inquiries regarding international cannabis, both from companies inside the U.S. looking internationally and from international companies looking to the U.S. market. This post deals with taxation issues for international companies seeking to enter the U.S. market.

Tax Treaties. The first level of taxation inquiry when looking to do business in the U.S. is to determine whether your home country is one of the 68 that has a bilateral tax treaty in place with the U.S. (see here for the IRS’ definitive list). The “tax” purpose of these tax treaties is to ensure taxable income is accounted for so that it can be taxed. The “treaty” part of the tax treaties refers to the agreement between the countries that their respective taxing authorities will apply certain reduced tax rates or entirely do away with other tax rates so as to avoid double taxation, fostering a more favorable business environment between the two countries.

IRC Section 280E. In the U.S. where cannabis as marijuana (> 0.3% THC content) continues to be illegal at the federal level, the IRS (Internal Revenue Service) keeps an eye on cannabis company taxation issues, particularly Section 208E of the Internal Revenue Code that deals with acceptable business deductions (cost of goods sold or COGS) for illegal enterprises (See 26 USC Section 280E. Expenditures in Connection with the Illegal Sale of Drugs). Section 280E is extremely important to cannabis (marijuana) companies, and their CPAs have the code section memorized.

Section 280E is less crucial for companies that are purely working with cannabis as hemp (< 0.3% THC). This is due to the 2018 Farm Bill that effectively legalized hemp by removing it from the definition of marijuana as a scheduled controlled substance. So companies that are purely dealing with hemp will find that their U.S. federal taxation issues are not significantly different from any other legal business industry in the U.S. That does not make U.S. taxation simple – only less complicated and more profitable due to the tax savings from being able to deduct normal business expenses.

State Tax Issues. For international cannabis companies looking to sell at retail in the U.S., whether through brick-and-mortar or through e-commerce sales, most of your (non-employee) U.S. tax concerns will center on U.S. state sales tax. Each state within the U.S. has its own sales tax rate, and each city and town generally has its own additional sales tax, so your U.S.-based accounting firm’s assistance will be crucial in ensuring you are withholding and paying the correct amount of sales tax for each transaction.

This helpful graphic and chart from the Tax Foundation will give you a good overview of US sales tax. Fortunately, U.S. sales tax is rarely as high as many international jurisdictions (for instance, 20% sales tax in Switzerland compared to 10-12% in some parts of Washington state).

You may owe business income tax in many U.S. states, depending on your level of activity in those states. Basically, wherever your customer is located, you will be responsible to collect and remit sales tax in those states.

Cannabis-Friendly CPA Firms. Lawyers are risk-adverse by nature. Accountants are the even more risk-averse cousins of lawyers. So you can imagine that finding a good CPA firm that understands international tax issues, federal tax issues (including IRC Section 280E), the difference between a marijuana business and a hemp business, state income tax, state sales tax, state and federal employment tax, etc., AND has a good head for business is as difficult as it is important. I know a few, but they are rare.

Are Lawyers More Important than CPAs? I love to ask my CPA friends this question. Obviously, the answer is yes if I am answering the question, but we are really two straps to the same pair of suspenders. When you as an international cannabis business owner are looking at the U.S. market, you need to find a good law firm and a good CPA firm, and you need your CPA firm involved at least as early as your lawyers. You need to do this so that both your lawyers and your CPAs can strategize with you regarding your business plan to take advantage of the optimal intersection of state cannabis laws, regulations, and enforcement regarding your cannabis activities, as well setting up operations in the states with a favorable business environment where corporate and franchise taxation are low or nonexistent.

In the next blog post in this series, I will address more U.S. legal considerations for international cannabis companies looking to capitalize on the U.S. market.

In just two years, the number of specialty pet stores that carried Colorado-based Functional Remedies’ CBD products increased dramatically, going from 100 to 500 – underscoring the fast growth of a market that’s now reaching mass-market retailers like Petco and PetSmart. “More and more people are understanding how CBD and how hemp-based products can enhance […]

Last Friday, May 22, petitioners submitted to the Oregon Secretary of State a ballot initiative (IP 34) seeking to permit the use of psilocybin for therapeutic use under a licensing and regulatory framework administered by the Oregon Health Authority (“OHA”). The submission was quite a feat, especially given the challenges presented by COVID-19 during the signature gathering period.

Readers of this blog will recall that IP 34 does not mean psilocybin would be available in stores–or even home use–and psilocybin products would not be branded or marketed to the general public. Rather, the purpose of the measure is to permit the use of psilocybin in licensed settings under the supervision of a trained facilitator.

We have been tracking the psilocybin movement for some time now. In August 2018, we wrote about the FDA approving a psilocybin trial for treatment-resistant depression. A few months later we covered the Oregon Attorney General’s approval of Initiative Petition 2020-12—a petition similar to IP 34—and noted the challenges facing the petitioners in collecting signatures and convincing 51% of Oregonians to vote “Yes.” At that time, we guessed that the signature hurdle would sink the initiative.

But the times they are a changing, as the bard sings. Since 2018, successful efforts to decriminalize psilocybin occurred in Denver, Oakland, and Santa Cruz. More recently, Alison Malsburywrote about the efforts to decriminalize psilocybin throughout the State of California and Vince Sliwoski prognosticated that such efforts would likely advance on two tracks—initiatives and ordinances on the on hand, and the pharmaceutical model on the other. He explained the similarities and differences between cannabis and psilocybin in this regard. Most recently, we wrote about new scientific research that may help us understand why psilocybin appears promising for therapeutic intervention.

The campaign for IP 34 turned in 133,252 signatures and the article linked above notes that 112,020 valid signatures are necessary for the initiative to make the November ballot in Oregon. The next step for IP 34 is review of the signatures by the Election Division of the the Oregon Secretary of State. For more information on the initiative and what you can do to help, visit the Yes on IP 34 site, take a look at this article by Marijuana Moment, and of course stay tuned here.